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Wednesday, May 21, 2008

Sunshine in Germany

I'm still catching up on the news, after a long weekend in a remote location. Among the articles I missed was one in Friday's New York Times on Germany's subsidies for solar power. Although the country's system of "feed-in tariffs" and the rapid growth in solar power to which they have contributed are the envy of renewable energy advocates around the world, some German legislators have concluded that the structure is too expensive for the small amount of clean electricity it generates: 0.6% of a mix still dominated by coal. If you dissect the arguments and view the environmental elements rationally, the debate is essentially over industrial policy, rather than energy policy. It provides a lesson that we should study carefully, in light of ambitious proposals at the federal and state level to emulate the German approach.

Although the Times article included a wealth of data, it neglected to mention the magnitude of the subsidy embedded in Germany's solar feed-in structure, which obligates utilities to purchase power from various renewable energy technologies at a set price for 20 years. The current law reduces that rate each year, though a more aggressive decline has been deferred for a couple of years. The cost of acquiring this power is allocated across all rate-payers, and many analyses focus on the relatively modest impact on each household--just a few Euros per month, so far. But that allocated cost is only small because the amount of electricity being generated is quite small, not because the tariff is. In fact, the feed-in tariff for electricity generated from photovoltaic modules is eye-poppingly generous: about 50 €-cents per kWh, which at current exchange rates translates to $0.78/kWh. Compare that to the $0.06-0.08/kWh cost of US wind power cited in the recent DOE study. Even if coal-fired electricity cost as much as €0.10/kWh in Germany, the effective cost of the carbon emissions saved by solar power at these prices equates to a staggering €440/ton, or about 17 times the going rate for emissions credits on the European Climate Exchange.

The Times noted that Germany receives fewer hours of sunshine each year than many other places, calling the growth of solar power in spite of this deficiency "all the more remarkable." Other adjectives come to mind, "silly" being one of the kindest. It is sometimes easy to forget that even Munich, Germany's southernmost metropolis, is farther north than Bangor, Maine or Quebec City. The combination of high northern latitudes and frequent cloudy conditions results in very low annual "insolation", the amount of solar energy delivered per square meter. The best regions of Germany for solar power receive less than half the solar energy of the US Southwest, and the worst get about a third. Of all the forms of renewable energy that Germany might have chosen to subsidize so generously, solar power seems the least suited to the country's physical geography.

When taken together, these two factors suggest strongly that Germany's support for its solar power industry has very little to do with either energy or environmental policy and everything to do with national industrial policy--creating industrial champions and the so-called green-collar jobs about which we have heard so much during the US presidential campaign. However, even without a recession, Germans are apparently now beginning to wonder about the cost-effectiveness of such an approach, which has loaded up a cloudy, northern country with solar panels that rarely see the sun. The German PV miracle should be a cautionary tale for US politicians and regulators, not a model to copy.